Peru Construction Boom Fuels ‘Spectacular’ Economic Growth

Peru’s economy expanded faster than economists expected in October as mounting investment fueled a construction boom, and the central bank raised its growth forecast for this year.

The economy expanded 6.7 percent from the same month a year earlier, after a 5.9 percent increase in September, the government’s statistics agency said in a report issued in Lima today. The median estimate of seven economists in a Bloomberg survey was for 6 percent growth.

Investment in mines, malls, housing and infrastructure spurred a 16.3 percent jump in construction in South America’s fastest-growing economy. The pace of October’s expansion was “spectacular” and surprised the central bank, which increased its 2012 growth forecast to 6.3 percent from 6 percent, bank President Julio Velarde told reporters in Lima today.

“We see signs of growing consumer and business confidence” while “a significant increase” in public investment is also spurring domestic demand without pressuring prices, Velarde said.

Lending growth slowed in October for the first time in five months after the central bank increased reserve requirements four times to head off inflationary pressures. The pace of lending to business and consumers slowed to 16.4 percent from 17.1 percent in September, the central bank said Nov. 26.

Solid Demand

“Domestic demand is solid thanks to high levels of investment,” said Melvin Escudero, chief executive officer of El Dorado Investments, a Lima-based institutional investor advisory firm. “Peru can easily grow 6 percent next year assuming Europe doesn’t fall apart, the U.S recovery continues and China’s economy doesn’t cool further.”

Export revenue from metals stabilized in October on higher prices for copper and gold, Peru’s top exports, after falling 6.1 percent in the first nine months of the year. Mining investment next year will increase to as much as $10 billion from about $7 billion this year, Mining Minister Jorge Merino told Congress Nov. 29.

Foreign direct investment will rise 34.6 percent to $11.1 billion this year compared with last year, the central bank said in a report issued in Lima today.

Current Appreciation

Consumer demand and investment will fuel growth of 6.2 percent next year, Velarde said.

The sol gained 0.1 percent to 2.5635 per U.S. dollar at 1:16 p.m. in Lima, according to Deutsche Bank AG’s local unit. The sol earlier touched 2.5550, the strongest level since 1996, data from Peru’s banking regulator show.

The currency has appreciated 1.2 percent in the past three months, the most among major Latin American currencies tracked by Bloomberg.

Fiscal restraint is easing pressure on the sol and policy makers will consider taking other measures to aid exporters and slow the appreciation if capital inflows intensify, Finance Minister Miguel Castilla said today. The government will post a fiscal surplus of 2 percent this year and probably a smaller surplus next year, he told reporters in Vina del Mar, Chile.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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